5 takeaways from the 2023 Medicare Advantage and Part D Final Rate Announcement

The Centers for Medicare & Medicaid Services (CMS) has finalized critical risk adjustment and Star Ratings updates for 2023 in the Medicare Advantage (MA) and Part D Final Rate Announcement. Key areas of focus for MA plans include the:

• Major 8.5% expected average increase in revenue
• Coding intensity adjustment remaining at the minimum 5.90%
• Increased weight of patient experience measures for Star Ratings
• Use of 2016–2020 risk scores to calculate the normalization factor
• Integration of social determinants of health (SDoH) into Medicare risk adjustment

The table below compares key figures from the final 2023 Rate Announcement, the 2023 Advance Notice, and the 2022 Rate Announcement.

*No increase above statutory minimum of 5.90%.

Overall payment increase doubles over 2022 Rate Announcement

Most significantly, the expected average change in revenue for 2023 of 8.5% more than doubles the 4.08% increase for 2022, and also exceeds the 7.98% increase proposed in the 2023 Advance Notice significantly. This major boost to plan revenue reflects CMS’s ongoing commitment to the health and wellbeing of the MA program and its beneficiaries.

As noted in a statement by the Better Medicare Alliance, “this is a Rate Announcement that puts beneficiaries first and ensures stability and continuity of care for the more than 28.5 million seniors and individuals with disabilities who choose Medicare Advantage nationwide.” With 42% of Medicare beneficiaries now enrolled in an MA plan and the Congressional Budget Office projecting this figure to reach 51% by 2030, MA plans will continue to play an increasingly pivotal role in caring for Medicare beneficiaries, and the revenue increase set forth in the 2023 Rate Announcement reflects this fact.

Coding intensity adjustment remains at statutory minimum

Each year, CMS sets the coding intensity adjustment to reflect differences in coding patterns between MA plans and providers under fee-for-service Medicare. When this rate is increased, it lowers the overall weighted risk adjustment factor (RAF) score for MA plans.

As with the 2022 Rate Announcement, CMS has again elected to keep the coding intensity adjustment set at the statutory minimum of 5.90%. In commenting on this in the 2023 Advance Notice, AHIP praised the decision, noting that “this approach will help MA plans keep premiums low and offer the important supplemental benefits that seniors increasingly value.” However, according to CMS, other commenters suggested that rather than apply a universal coding pattern adjustment, the agency should take a more targeted approach that recognizes that “coding patterns across the MA landscape are heterogeneous and that failure to recognize these differences across plans by applying an across-the-board coding pattern adjustment could result in an inequitable outcome.”

Ultimately, CMS indicated that it has “found the minimum adjustment, as established and updated in statute over the years, sufficient to reflect the differences in coding patterns between MA plans and providers under Parts A and B that are indicated in our annual analysis.”

Patient experience in Star Ratings takes on higher weight

In last year’s final rule, CMS finalized its plan to increase the weight of patient experience measures from 2 to 4 for the 2023 Star Ratings. In its comments on the 2023 Advance Notice, AHIP urged the agency to issue an interim rule maintaining this weight at 2, noting the COVID-19 public health emergency could continue to impact patient experience survey and response rates. However, CMS confirmed in its final Rate Announcement that the weight increase will proceed as planned.

Now is the time for MA plans to step up their game when it comes to member engagement. New, innovative strategies are needed to reach members for improved survey completion rates, including a combination of outreach across phone, email, text, interactive voice response, and secure web portals. MA plans should also invest in improving all touchpoints of the member journey beginning with enrollment.

Industry comments on normalization factor adjustment

In responding to the Advance Notice, AHIP raised several concerns around CMS’s proposal to exclude calendar year (CY) 2020 utilization data (2021 risk scores) to calculate the 2023 normalization factor, instead once again utilizing CY 2015–2019 data as done last year. According to AHIP’s analysis, if CMS were to use CY 2016–2020 utilization data to calculate the normalization factor instead, it would result in a positive adjustment to risk scores rather than negative.

In the final Rate Announcement, CMS acknowledged this concern but maintained its position:

CMS believes that the inclusion of the 2021 risk score in the slope calculation will result in a projected risk score (i.e., normalization factor) that is significantly below what the actual average FFS risk score is likely to be in 2023. The proposed approach maintains the stability of using our longstanding five-year linear slope methodology (using 2016–2020 FFS risk scores for the CY 2023 calculations) while balancing the impact of the pandemic on the normalization factor projection and the progressive increase in risk scores evident in the historical trend prior to 2021. 

The COVID-19 pandemic has increased complexity and uncertainty for Medicare risk adjustment, and this is likely to continue well into the future. To help mitigate these factors, health plans should proactively invest in prospective risk adjustment capabilities including in-home assessments as well as electronic clinical data acquisition. By partnering with a vendor that has preestablished interoperability with EMR/EHR systems, MA plans can improve risk scores and gain a competitive advantage in this increasingly difficult marketplace.

Integration of SDoH into risk adjustment draws praise and concern

In comments submitted to CMS, AHIP noted MA plans’ commitment to improving health equity and recognizing the role that social and economic factors play in an individual’s holistic health status. However, the trade group also noted several concerns around both collecting and acting on SDoH data, including the development of standards for SDoH data collection and sharing as well as the infrastructure needed to collect, store, and share this data.

In the final notice, CMS summarized additional concerns raised during the public comment period as well, noting that it will take these comments into account as it develops risk adjustment model changes for future years:

A few commenters voiced concern about adding SDoH to the CMS-HCC risk adjustment model, requesting that CMS consider whether risk adjustment is the most appropriate way to support activities promoting health equity. One commenter posited that investment in the healthcare delivery system will be required to address health equity concerns and observed that the intent of CMS adjusting risk scores to account for SDoH impacts on healthcare would seem to be to provide the additional funds that could be used to improve delivery system effectiveness, but the commenter noted, there is no guarantee that the additional funds would be used for such purposes. A couple of commenters highlighted that care coordination across a patient population is challenging because the necessary information technology infrastructures that allow for feedback loops and analysis of outcomes are often not available.

As CMS, the National Committee for Quality Assurance (NCQA), and others continue to develop standards for SDoH collection, MA plans must keep health equity as a guiding principle at the forefront of program and payment model design and implementation. Although industrywide standards are still being worked out, MA plans should consider solutions that enable multichannel member engagement to collect this data as well as design both provider and member incentive programs to facilitate its capture.

Overall, the 2023 Rate Announcement is welcome news to the MA plans entrusted with caring for 29 million seniors throughout the United States. By using this increased revenue to help improve risk score accuracy and premium accuracy as well as create an ecosystem where their members have meaningful interactions with their providers to have their care gaps closed for better health, plans will realize success today’s hyper-competitive MA marketplace.